Union Budget 2010- Increased MAT to burden telcos

The Finance Minister in Union Budget 2010-11 has proposed to increase the Minimum Alternative Tax (MAT) rate from 15% to 18%.

This would be negative for most of the telecom companies, as they currently paying tax at MAT rate. However, the surcharge for the corporates has been proposed to reduce to 7.5% from 10% which will be marginally positive for the company.

T R Dua, Officiating Director General, Cellular Operators' Association of India (COAI), stated that while at a macro level the Budget seems to be growth oriented, however the concerns of the telecom sector with regard to the high tax burden still stay unaddressed.

As far as the telecom sector is concerned, Dua said, "while the reduction in Corporate Surcharge would provide a minor relief, but at the same time the increase in MAT from 15% to 18% is a major are of concern."

The Service Tax rate will remain intact at 10% while the general Excise Duty rate has been increased by 200 bps to 10%.

This is good for the telecom service providers as well as subscribers, as there is intense price competition in the sector which would have make it difficult for the service providers to pass it on to specially pre-paid subscribers.